Economy

    DACF Proposes 75% Revenue Guarantee for Local Governments

    A constitutional amendment would secure a minimum share of internally generated funds for district assemblies, aiming to boost fiscal autonomy and local development.

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    DACF Proposes 75% Revenue Guarantee for Local Governments
    Ghana is considering a significant change to how its local governments are funded. The Administrator of the District Assemblies Common Fund (DACF), Michael Yamson, has proposed a constitutional guarantee. This guarantee would ensure that Metropolitan, Municipal, and District Assemblies (MMDAs) retain at least 75% of the qualifying revenues they generate within their own areas. This proposal aims to strengthen the financial independence of MMDAs. It would protect their locally generated revenues from potential policy changes by the central government in the future. Mr. Yamson made this suggestion during the National Dialogue on Decentralization and Responsive Governance, highlighting the need for a more secure financial footing for local authorities. Currently, MMDAs keep 100% of their internally generated funds (IGF). However, this is based on existing policy and administrative practice, which could be reversed by a future administration. The proposed 75% guarantee is not a reduction from the current 100% retention. Instead, it establishes a constitutional minimum, ensuring that a significant portion of local revenue is always available for local development, regardless of future policy shifts. This distinction between a 'floor' and a 'ceiling' is crucial, as MMDAs would still aim to retain all their IGF under the current system. Mr. Yamson emphasized that the 100% retention currently enjoyed by MMDAs is a matter of policy. It is not constitutionally protected and could be revoked. By embedding a 75% minimum in the constitution, Ghana would extend protection beyond central government transfers. This would include revenues mobilized directly by the assemblies themselves. Ghana's existing decentralization framework already protects central-to-local transfers through the District Assemblies Common Fund, but local revenue retention has been treated differently until now. Local governments are responsible for planning and funding essential services. These include infrastructure, sanitation, markets, and roads. Many MMDAs, however, rely heavily on transfers from the central government. Delays or uncertainties in these transfers can hinder budget execution and make it difficult for assemblies to plan beyond the immediate financial year. A constitutionally protected share of locally generated revenue would give assemblies greater confidence that resources raised locally will remain available for local development. This increased financial security could also encourage MMDAs to improve their revenue collection efforts. It could lead to better property rate administration, broader revenue registers, and reduced collection leakages. However, fiscal autonomy also raises questions about the ability of assemblies to expand their revenue bases. To address this, Mr. Yamson also proposed a district own-revenue mobilization compact. Under this compact, every MMDA would need to achieve at least 15% annual growth in locally generated revenue. This would be a condition for receiving their full grant allocation. This compact introduces a performance component into Ghana's system of intergovernmental transfers. The economic logic is clear: a constitutional guarantee provides security, while the growth target encourages greater effort in revenue generation. However, a uniform 15% growth requirement could create disparities. Urban areas like Accra, Tema, and Kumasi have larger commercial and property markets, making 15% growth more achievable. Rural districts with smaller formal business bases might struggle to meet the same target, even with efficient administration. This highlights an important design question: how to ensure the grant system supports all districts fairly, especially those most in need of fiscal assistance.

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